The International Monetary Fund(IMF) has said that Kenya’s economy continues to perform well, pointing out that real Gross Domestic Product(GDP) growth was an estimated 5.6 percent in 2019, driven by the continued resilience of the service sector.
This helped offset a slowdown in agriculture due to delayed rains in the first half of the year and excessive rains later in the year.
Headline inflation averaged 5.2 percent in 2019 and stood at 6.4 percent in February 2020, mainly driven by food prices. Food inflation has remained elevated (averaging 8.4 percent between April 2019 and February 2020) but is expected to decline with normalizing weather.
According to the IMF, the external current account deficit narrowed further to 4.6 percent of GDP from 5.0 percent in 2018, mainly due to lower imports of capital goods and petroleum products, which more than offset a decline in goods exports (e.g., in tea and coffee).
Remittances remained strong. External buffers are healthy, with foreign exchange reserves increasing to US$9.1 billion (5.4 months of imports) at end-2019.
“The banking sector remains well-capitalized and liquid. The system’s core and total regulatory capital to risk-weighted assets stood at 16.8 and 18.8 percent, respectively, as of December 2019. Liquidity risk has eased with improved distribution of liquidity across all banks. Lending to the private sector started to gain momentum in 2019, reaching 7.3 percent year-on-year in January 2020,” IMF said in a statement at the conclusion of a staff visit to Kenya.
A staff team from the International Monetary Fund (IMF), led by Benedict Clements, visited Kenya from February 19-March 3, 2020, to undertake negotiations on a new precautionary three-year stand-by arrangement/stand-by credit facility.
“Significant progress was made during the visit, and discussions will continue in the coming period. There is broad agreement on the main principles of a plan for growth-enhancing fiscal consolidation that would cut waste and boost revenues to enable priority spending while reducing the deficit to below 4 percent of GDP by FY2022/23 as targeted in the authorities’ draft Budget Policy Statement,” added the IMF.
“Technical work will continue to firm up underpinnings of the plan, which could be supported by a Fund arrangement,” noted the statement.
According to IMF, credit is expected to rise further following the removal of interest rate controls in November 2019.
JK/abj/APA